By Geoff Williams
If you're graduating from college soon, you're probably in your early 20s, which means you're beginning an incredibly exciting and stressful decade. It'll be exciting because so many life milestones are in store for you. It'll be stressful because you may not be able to afford to go to the store.
Your 20s can include years of lean paychecks while trying to pay for really expensive things (renting an apartment or buying a car or perhaps starting a family), all while facing a lot of financial hurdles. So if you're just starting your adult life, expect to find some of the following obstacles on the road ahead.
You Don't Have a Career Yet
If you weren't one of those fortunate graduates who left with a degree and a job offer, you're probably searching for work. If so, think big, urges Dana Manciagli, a career coach in Bellevue, Washington.
"Yes, the startups are cool, and the ongoing dream of making big money when it goes IPO is appealing," she says. "But those companies will always be there, and you can start higher in the startups later once you have credibility. Once you work for GE, Nordstrom or any Fortune 500 corporation, at least for two years, nobody can take that away from you."
When you do land a job, don't coast, Manciagli cautions. "Too many 20-somethings just do the job they are asked to do, then jam out of there to enjoy their free time. You need to drive your career growth now and demonstrate you're a top performer -- not an average one." She suggests asking for more projects and working more hours and offering to help others around you.
Don't be surprised if you discover your first paycheck is nothing like what you dreamed it would be. Actually, it may be nothing if all you can find is an unpaid internship. Whatever you do this decade, don't settle for being cash-poor too long or stuck in a dead-end job. At least that seems like the logical conclusion, based on a Federal Reserve Bank of New York report that came out in February. It found that what you earn in your 20s will likely set the stage for what you'll earn the rest of your life. So if you're making a lot of money, you're more likely to keep up that trend. But if you're consistently earning paltry paychecks, odds are, you will be in another decade or three as well.
So what's a panicked 20-something to do? "If you have been in your current position for at least two years without a wage or salary increase, then your first step is to have a career discussion with your manager," she says. "Too many 20-somethings just quit without asking for a promotion or sharing their ambition." If your manager shoots you down, though, she says it's time to look a new job -- but don't quit until you've found new employment.
You Have No Credit History
You may have a long and varied credit history if you've been on your own for a while or cosigned a credit card a while back, but most college graduates presumably don't, thanks to the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Ever since that became law, anyone 21 and under who wants a credit card has needed to have a parent or another adult as a co-signer.
"Many college students think only spending on a debit card is the best way to go, but then you've given up the opportunity to build credit," says Susan Bruno, co-founder of CollegeCFO.com, a resource for college students to get control of their financial life.
Of course, there are good reasons to keep college students away from credit cards. Before the act went into effect, college students frequently graduated without jobs and with thousands of dollars in credit card debt. But now the downside is that many students leave college with no credit history to accompany them into the real world.
Bruno, also a certified public accountant and financial planner in Stamford, Connecticut, suggests applying for a credit card as soon you are able, so that your credit history can positively affect your future. And if you're a recent graduate with student loans, you are at least building your credit by paying them off, so whatever you do, don't fall behind on those bills, Bruno says. "That will destroy your credit," she says, and you need good credit, or at least not terrible credit, "so you can sign an apartment lease, get a car loan or even get a cable connection."
A good credit score is generally considered to be 720 and above. If you're in the upper 600s, though, you have nothing to be ashamed about. If you're in the low 600s or in the 500s, you have a lot of credit-building work to do.
You Have a Lot of Student Loans
According to a 2014 report from the Institute for College Access & Success, the average graduate is saddled with $28,400 in student loan debt. If that's you, or you're in worse shape, then a lot of your paycheck is going toward paying off your past instead of helping you build your future.
So you'd do well to consider a few pieces of advice from Andrew Josuweit, founder of StudentLoanHero.com, a platform for managing student loans.
First, you could consider refinancing your loans. If you're struggling to pay your loans, Josuweit says there are 15 financial institutions offering student loan refinancing. You might also be eligible for an income-driven plan for your federal loans, like Pay as You Earn, a federal program. He also suggests signing up for automatic payments of your student loans. "You receive a 0.25 percent interest-rate reduction, and it also helps you avoid missing payments," he says, adding: "At all costs, try to avoid defaulting on your student loans."
You Don't Have Much Financial Experience Yet
There are a lot of financial decisions ahead of you. You might buy a car or two this decade. You'll need insurance for it. If you're still on your parents' health insurance, you'll have to get your own once you hit your 26th birthday. If you're doing this all for the first time, and without any help, you could make a lot of mistakes – the expensive kind that you never really laugh about later.
"Seek help and guidance," says Michael Conway, CEO of Conway Wealth Group at Summit Financial Resources in Parsippany, New Jersey. "Answers and advice are omnipresent and often free, through parents, relatives, neighbors, friends."
Most of them, Conway adds, probably have more experience in making financial decisions. But he points out that you may be more worried, not about your financial inexperience but about the banking system as a whole, since you and your family may have been shaken up by the Great Recession, of which some households are still feeling the hangover effects. With some millennials, Conway says, "it's difficult, in their minds, to invest or save within a system that has already made them a victim."
Ryan Wibberley, co-chairman and CEO of CIC Wealth, a financial planning firm in Gaithersburg, Maryland, sees this as well. "Twenty-somethings need to get over the hurdle of trust and confidence in the markets," he says. "I'm afraid that many are not investing as aggressively as they should, because they don't trust the financial markets, with good reason, and they will miss out on the long-term benefits that come with investing in equities."
If your parents have a financial adviser, seek some advice. "The parent's adviser is generally very interested in helping out the children of their clients, as a favor to the client," he says. Besides, older people tend to like helping out those just getting started in life. You might as well take advantage of that while you can. You aren't getting any younger.
By Geoff Williams